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Investments - Unsuitable

Time and Again, Broker Sold Off Customer’s Entire Portfolio, Only to Buy It Back a Short Time Later

April 22, 2020

[Photograph:  Yogi Berra /]


by Howard Haykin



A broker repeatedly sold all, or substantially all, of an elderly customer’s holdings in a large, dividend-issuing, blue-chip stock, only to repurchase that same stock in the customer’s account a short time later. Unsuitable trading. Nothing done by the firm to tamp down this abuse.



On 11 separate occasions, from June 2010 through August 2015, a broker with K.C. Ward Financial (a now-defunct broker-dealer) executed these unsuitable "revolving door" transactions in the account of a senior customer. The blue-chip stock that was sold and bought was the customer’s primary retirement asset, while this customer's account served as the primary source for most of the broker's commissions. On each such round-trip transaction, the broker charged 6% in mark-ups and mark-downs.


For example, on October 31, 2012, the broker sold 5,000 shares of the blue-chip stock in his customer's account at prices ranging from $103 to $103.15 per share. Within 2 months, the broker repurchased the 5,000 shares in the customer's account at prices ranging from $106.87 to $111.91 per share. These out-and-in trades cost the customer nearly $50,000 in transaction fees and trading losses.


Over the 5-year period, the 11 “round-trip trades” executed by this broker cost the customer around $575,000 in mark-ups, mark-downs, transaction fees, lost dividends, and trading losses. And it’s likely that the customer never recovered a penny of her losses. K.C. Ward Financial closed down its business in February 2018.



PROTECTING ONE’S INVESTMENTS.    The elder customer in this case was clearly 'in over her head' when it came to investments. And because she didn't have a trusted friend, family member or independent financial watchdog to monitor her financial affairs, her brokerage account was primed for abuse. According to FINRA, this story may have had a happier ending, had the CEO and supervisory principals at K.C. Ward Financial done their jobs and investigated the unsuitable trades as they were flagged throughout the 5-year period.


As has said time and again, there’s no substitute for hands-on monitoring of accounts – by customers or their designated adviser(s). The time is now.



[For further details, click on … FINRA Case #2017054267101.]